30th Sep 2015 07:00
30 September 2015
Northbridge Industrial Services Plc
("Northbridge" or the "Group")
Unaudited Interim Results for the six months ended 30 June 2015
Northbridge, the industrial services and rental company today announces its unaudited interim results for the six month period ended 30 June 2015.
Key Points
· Group revenue down 12.3% to £18.6 million (2014: £21.2 million)
· Pre-exceptional operating loss of £0.3 million (2014: profit of £3.6 million)
· Cash generation from operations of £3.3 million (2014 :£4.4 million)
· Pre-exceptional EBITDA of £3.4 million (2014: £6.6 million)
· Exceptional costs in response to current market conditions £1.5 million (2014: £nil)
· Net gearing 39.9% (31.6% at 31 December 2014)
· LPS 10.5 pence per share (2014 EPS: 14.8 pence)
· Interim dividend of 1.0 pence (2014: 2.2 pence)
· Disposal or closure of non-core activities now complete, raising around £1.5 million cash in 2015
· Further reduction of operating expenses have been made to save £1.5 million on an annualised basis
Commenting on the results and the outlook, Eric Hook, Chief Executive of Northbridge said:
"The Group has acted quickly and decisively during the current crisis in the Oil & Gas industry, exiting non-core activities, raising cash and cutting costs. These actions have now been largely completed and will not compromise its ability to benefit from any future upturn and the Group is well positioned to grow when more stable market conditions return."
For further information
Northbridge Industrial Services plc 01283 531645
Eric Hook, Chief Executive Officer
Westhouse Securities Limited (Nominated Adviser and Broker) 020 7601 6100
Robert Finlay / Antonio Bossi / Henry Willcocks
Buchanan 020 7466 5000
Charles Ryland / Stephanie Watson
About Northbridge:
Northbridge Industrial Services plc hires and sells specialist industrial equipment. With offices or agents in the UK, US, Dubai, Belgium, Germany, France, Australia, Singapore, India, Brazil and Korea, Northbridge has a global customer base. This includes utility companies, the oil and gas sector, shipping, banking, mining, construction and the public sector. The product range includes loadbanks, transformers, and oil tools. Northbridge was admitted to AIM in 2006 since when it has recorded increased earnings and dividends based on providing a high level of service, responsiveness and flexibility to customers. It has grown by the acquisition of companies in the UK, Dubai, Australia, Belgium and Singapore and through investing further in those acquired companies to make them more successful. Northbridge continues to seek suitable businesses for acquisition across the world.
Chairman's statement
As had been highlighted in our previous announcement, and again at our AGM in May, market conditions are extremely difficult for the Group's activities that are involved in the oil and gas industry. The Group's performance for 2015, which followed our most successful year so far in 2014, underline this point.
The dramatic and unprecedented fall in the price of crude oil experienced in the last quarter of 2014 began to impact the Group's trading at the beginning of this six month trading period, as existing contracts came to an end and new contracts became much harder to secure.
Many of our customers faced significant cutbacks in their own capital expenditure programmes, including postponements, long term delays and project cancellations. This affected both the Tasman drilling tool businesses and the Crestchic load testing activities in the Middle and Far East. The impact of a rapidly slowing rental revenue stream disproportionally affected our trading profits, due to the much higher operational gearing of this activity.
Though other parts of the group, operating mainly out of Europe, notably Crestchic loadbanks and transformers, fared much
better, and profits were on a par with the comparative period in 2014, our actions to mitigate the very poor trading conditions in the oil and gas sector have been swift.
So far this year we have exited non-core activities and reduced overheads, releasing cash and management time. Despite the exceptional costs of these actions, this has positioned the Group in preparation for the future.
To date we have carried out the following actions:
· Closed the loss making Loadcell operation in Vietnam. The Loadcell activity in Singapore remains and continues to make a contribution.
· Disposed of the generator hire fleet assets in TTERS in Dubai and closed the business.
· Exited the compressor rental market in the UK and disposed of both the trade and the assets.
· Disposed of the trade and assets of RDS, our subsidiary based in Baku, Azerbaijan, which rents generators, welding sets and lighting towers to the oil and gas industry in the Caspian region.
· Disposed of non-core, surplus and incompatible hire fleet.
The cash released from these actions will amount to around £1.5 million in 2015 and will be utilised to pay down debt.
In addition we have:
· Reduced the future capital expenditure programme by £10.0 million up to December 2016.
· Completed a further cost cutting exercise since 30 June 2015 which will reduce operating expenditure by a further £1.5 million on an annualised basis.
· Agreed a delay in payment of part of the final deferred consideration for Tasman New Zealand (TNZ) and NZD$2.0 million will now be paid in 2017 (out of NZD$4.5 million). TNZ was acquired in September 2014 and remains profitable in the first six months of 2015.
Following these actions, we now have a much more streamlined Group focussing on its core activities, loadbanks, transformers and drilling tools, which have a worldwide presence. This will provide a platform for the Group to continue its growth in the future when more favourable conditions return.
Despite the losses, EBITDA was robust and the Group remains cash generative. It has sufficient headroom to meet all its scheduled bank repayments in the next fifteen months. However, it will need to agree a re-setting of certain covenants due to be tested on 31 December 2015 and thereafter. The Group has agreed with its bankers, who are very supportive, that the covenants will not be tested on 30 September, and negotiations are ongoing. The Directors believe that the outcome will be successfully completed prior to 31 December 2015. To underline this confidence, the Group will pay a reduced interim dividend of 1p to ordinary shareholders in October.
On a positive note, over the last few months Tasman Oil Tools has been awarded a number of Master Service Agreements (MSA) for a range of drilling tools to cover both the Middle East and Asia Pacific region (MEAP). These are important awards with major international oil service companies which have been won competitively. They will be serviced from our existing locations in the UAE, Australia and New Zealand. This will give us the scope and opportunity to significantly increase our market share when drilling returns to more normal levels.
We are also on target to open our first loadbank location in North America imminently and we will thereafter have direct access to the lucrative US rental market. From this position we will also be better able to support our current customer base which will lead to additional sales in the medium term.
The cost cutting exercise referred to above will mean a number of senior staff leaving their positions with the Group. This also includes our corporate head office and Craig Robinson, the Group Finance Director, will leave the Group at the end of September and will not be replaced. The Board of Northbridge would like to thank Craig and the rest of the staff affected for their hard work and wish them well in the future.
Financial results
Northbridge's revenue for the half year ended 30 June 2015 totalled £18.6 million (2014: £21.2 million) with gross profits of £8.1 million (2014: £11.6 million). Losses before tax totalled £2.1 million (2014: profit of £3.3 million), after an exceptional charge of £1.5 million (2014: £nil). The exceptional charge includes £0.9m costs of closing down businesses, £0.2m of redundancy costs relating to continuing entities, £0.1m of acquisition costs and a £0.2m impairment charge on the intangible assets relating to our loadcell business in Singapore. The board has reviewed the carrying value of its other assets and does not believe that any further impairment is necessary.
Net assets at 30 June 2015 were £40.7 million (31 December 2014: £46.4 million).This includes a negative movement of £2.7m on the foreign exchange reserve due to the relative strength of Sterling in the period.
The effective tax rate for the first half following the trading losses was zero, but there was a small tax credit of £0.1 million (2014: 22.4%).
The basic loss per share was 10.5 pence compared with earnings per share (EPS) of 14.8 pence in 2014. Fully diluted losses per share were 10.4 pence compared to EPS of 14.3 in 2014.
Financing and cash flow
Cash flow during the period continued to be positive despite the downturn in trading. Cash flow from operating activities (before movements on working capital) was £1.9 million (2014: £6.5 million) and a further £1.8 million (2014: £0.5 million) was received from sale of assets from the hire fleet. Investment into the hire fleet was £3.8 million (2014: £3.6 million); the majority of this was ordered during 2014. The final part of the first instalment of the deferred element of the consideration for Tasman New Zealand was made in January (after £1.2 million was paid in December 2014) and amounted to £1.0 million. Net financial gearing at the period end was 39.9% (31 December 2014: 31.6%).
Earnings before interest, taxation, depreciation and amortization (EBITDA) and before exceptional costs, in the first six months of 2015 was £3.4 million (2014: £6.6 million) down 48%.
Dividends
The Board has declared an interim dividend of 1.0 pence (2014: 2.2 pence), down 55%, to be paid on 30 October 2015 to shareholders on the register on 9 October 2015.
Operations
Crestchic Loadbanks and Northbridge Transformers
Crestchic had mixed fortunes, the UK and European manufacturing, sales and rental operation performed well. Total turnover was £9.0 million (2014: £7.7 million) and rental, including Northbridge Transformers, reached £3.3 million (2014: £3.6 million). Gross margin on sales was 34.2% (2014: 27.0%), this was influenced by a large order being despatched shortly after the period end in 2014. Hire margins at 68.4% (2014: 71.8%) were affected by the slightly lower volume overall.
The overseas operations of Crestchic, which are mostly rental, were badly affected by the downturn in the oil and gas sector. The total revenue in Crestchic Middle East was £0.7 million compared with £3.3 million in the equivalent period in 2014 when we completed a large turbine testing project in Iraq. In Singapore, total revenue was £2.2 million (2014: £3.9 million) as overall demand was considerably reduced as our prime customer base of the shipyards suffered from a continuing stream of cancelations and delays.
Tasman Oil Tools
Tasman Oil Tools, our oil tool rental business in the Middle East Asia Pacific region (MEAP), now operates from Perth and Darwin in Australia, New Plymouth in New Zealand and Dubai in the Middle East. Since the acquisition of Tasman New Zealand in 2014, the businesses all work as a single identity "Tasman", and operate off the same platform and have a shared hire fleet. They have a substantial presence in the market despite the severe down turn in drilling activities. Overall revenue during the period was £6.1 million (2014: £6.4 million). The previous year comparison excludes Tasman New Zealand which was acquired in the second half of 2014.
Outlook
During the last three months we have seen a substantial reduction in the price of crude oil again, together with some emerging problems in the Chinese economy. In the short term this will impact our industry and consequently on the Group's trading results for 2015 and 2016.
The steps we have taken over the last few months, to reduce costs and streamline the business, will help mitigate these market driven problems. We will focus on ensuring our customer facing activities remain intact and we are ready for the recovery when it comes.
Recent contract wins under Master Services Agreements and other partnerships will ensure that we continue to improve our market share in those areas that we operate. We are also expecting a modest return of some geothermal drilling in New Zealand in 2016, following the slowdown after the recent privatisation of the geothermal utilities.
We will continue to concentrate on cash generation and reduction of gearing over the next 18 months, ensuring that we can invest when the recovery is underway. We remain confident that our strategy is the correct response to current market conditions and that some recovery in the market will lead to a return to profits in the future.
Peter Harris
Chairman
30 September 2015
Consolidated statement of comprehensive income
For the six months ended 30 June 2015
Notes | Six months ended 30 June 2015 Unaudited £'000 | Six months ended 30 June 2014 Unaudited £'000 | Year ended 31 December 2014 Audited £'000 | |
Revenue |
| 18,560 | 21,171 | 44,871 |
Cost of sales |
| (10,477) | (9,612) | (23,150) |
Gross profit |
| 8,083 | 11,559 | 21,721 |
Operating costs |
|
|
|
|
Excluding exceptional costs |
| (8,336) | (7,974) | (14,229) |
Exceptional costs | 3 | (1,475) | - | (655) |
Total operating costs |
| (9,811) | (7,974) | (14,884) |
(Loss)/profit from operations |
| (1,728) | 3,585 | 6,837 |
Finance income |
| 3 | 17 | 33 |
Finance costs |
| (331) | (293) | (570) |
(Loss)/profit before taxation excluding exceptional costs |
| (581) | 3,309 | 6,955 |
Exceptional costs |
| (1,475) | - | (655) |
(Loss)/profit before taxation |
| (2,056) | 3,309 | 6,300 |
Income tax credit/(charge) |
| 120 | (741) | (1,228) |
(Loss)/profit for the period attributable to the equity holders of the parent |
| (1,936) | 2,568 | 5,072 |
Other comprehensive income |
|
|
|
|
Exchange differences on translating foreign operations |
| (2,737) | (485) | 472 |
Other comprehensive income for the period, net of tax |
| (2,737) | (485) | 472 |
Total comprehensive income for the period attributable to equity holders of the parent |
| (4,673) | 2,083 | 5,544 |
(Loss)/earnings per share attributable to the equity holders of the parent | 4 |
|
|
|
- basic (pence) |
| (10.5) | 14.8 | 28.8 |
- diluted (pence) |
| (10.4) | 14.3 | 28.0 |
Dividend per share (pence) | 5 | 1.00 | 2.20 | 6.20 |
All amounts relate to continuing operations.
Consolidated balance sheet
As at 30 June 2015
| 30 June 2015 Unaudited £'000 | 30 June 2014 Unaudited £'000 | 31 December 2014 Audited £'000 |
ASSETS |
|
|
|
Non-current assets |
|
|
|
Intangible assets | 16,980 | 10,280 | 19,618 |
Property, plant and equipment | 36,921 | 34,390 | 39,113 |
| 53,901 | 44,670 | 58,731 |
Current assets |
|
|
|
Inventories | 4,848 | 5,841 | 4,249 |
Trade and other receivables | 12,233 | 12,805 | 12,858 |
Cash and cash equivalents | 2,356 | 3,320 | 3,427 |
| 19,437 | 21,966 | 20,534 |
Total assets | 73,338 | 66,636 | 79,265 |
LIABILITIES |
|
|
|
Current liabilities |
|
|
|
Trade and other payables | 7,859 | 8,442 | 6,510 |
Financial liabilities | 5,017 | 4,592 | 4,726 |
Other financial liabilities | 1,867 | 135 | 1,021 |
Current tax liabilities | 219 | 953 | 887 |
| 14,962 | 14,122 | 13,144 |
Non-current liabilities |
|
|
|
Financial liabilities | 13,572 | 10,409 | 13,372 |
Other financial liabilities | 159 | 269 | 2,244 |
Deferred tax liabilities | 3,993 | 2,607 | 4,082 |
| 17,724 | 13,285 | 19,698 |
Total liabilities | 32,686 | 27,407 | 32,842 |
Total net assets | 40,652 | 39,229 | 46,423 |
Equity attributable to equity holders of the parent |
|
|
|
Share capital | 1,864 | 1,764 | 1,859 |
Shares to be issued | - | 311 | - |
Share premium | 23,266 | 19,645 | 23,188 |
Merger reserve | 2,810 | 849 | 2,810 |
Treasury share reserve | (451) | (201) | (201) |
Foreign exchange reserve | (3,898) | (2,118) | (1,161) |
Retained earnings | 17,061 | 18,979 | 19,928 |
Total equity | 40,652 | 39,229 | 46,423 |
Consolidated cash flow statement
For the six months ended 30 June 2015
| Six months ended 30 June 2015 Unaudited £'000 | Six months ended 30 June 2014 Unaudited £'000 | Year ended 31 December 2014 Audited £'000 |
Cash flows from operating activities |
|
|
|
Net (loss)/profit from ordinary activities before taxation | (2,056) | 3,309 | 6,300 |
Adjustments for: |
| ||
- amortisation and impairment of intangible fixed assets | 831 | 417 | 895 |
- amortisation of capitalised debt fee | 146 | 27 | 55 |
- depreciation of property, plant and equipment | 2,853 | 2,594 | 5,451 |
- profit on disposal of property, plant and equipment | (343) | (152) | (423) |
- non-cash movement in deferred consideration | 77 | (17) | (190) |
- investment income | (3) | (17) | (33) |
- finance costs | 331 | 293 | 570 |
- share option expense | 48 | 48 | 96 |
| 1,884 | 6,502 | 12,721 |
Increase in inventories | (408) | (1,896) | (215) |
Decrease/(increase) in receivables | 217 | (1,068) | 1,096 |
Increase/(decrease) in payables | 1,597 | 869 | (5,016) |
Cash generated from operations | 3,290 | 4,407 | 8,586 |
Finance costs | (331) | (293) | (570) |
Taxation | (558) | (745) | (1,180) |
Hire fleet expenditure | (3,322) | (2,311) | (5,966) |
Sale of assets within hire fleet | 1,825 | 505 | 2,154 |
Net cash from operating activities | 904 | 1,563 | 3,024 |
Cash flows from investing activities |
|
| |
Finance income | 3 | 17 | 33 |
Acquisition of subsidiary undertaking (net of cash acquired) | - | - | (4,126) |
Payment of deferred consideration | (1,025) | (70) | (2,306) |
Sale of property, plant and equipment | 99 | 92 | 112 |
Purchase of property, plant and equipment | (230) | (347) | (1,052) |
Net cash used in investing activities | (1,153) | (308) | (7,339) |
Cash flows from financing activities |
|
| |
Proceeds from share capital issued | 83 | 350 | 3,721 |
Purchase of own shares | (250) | - | - |
Proceeds from bank and other borrowings | 14,064 | 6,562 | 4,721 |
Repayment of bank and other borrowings | (12,861) | (7,048) | (1,962) |
Payment of finance lease creditors | (915) | (627) | (1,166) |
Dividends paid in the year | (735) | (676) | (1,081) |
Net cash (used in)/from financing activities | (614) | (1,439) | 4,233 |
Net decrease in cash and cash equivalents | (863) | (184) | (82) |
Cash and cash equivalents at beginning of period | 3,427 | 3,513 | 3,513 |
Exchange losses on cash and cash equivalents | (208) | (9) | (4) |
Cash and cash equivalents at end of period | 2,356 | 3,320 | 3,427 |
During the period the Group acquired total property, plant and equipment with an aggregate cost of £3,769,000 (2014: £3,553,000) of which £217,000 (2014: £895,000) was acquired by means of finance lease. This includes £3,459,000 (2014: £2,982,000) of hire fleet additions of which £137,000 (2014: £671,000) was acquired by means of finance lease.
Notes to the unaudited interim statements
For the six months ended 30 June 2015
1. Basis of preparation
This interim report has been prepared in accordance with the accounting policies disclosed in the full statutory accounts for the year ended 31 December 2014.
These policies are in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively "IFRS") issued by the International Accounting Standards Board, as endorsed for use in the European Union, that are expected to be applicable for the year ending 31 December 2015.
The Group has chosen not to adopt IAS 34 "Interim Financial Statements" in preparing the interim consolidated financial information.
The financial information in this statement relating to the six months ended 30 June 2015 and the six months ended 30 June 2014 has not been audited, but has been reviewed pursuant to guidance issued by the Auditing Practices Board.
The financial information for the year ended 31 December 2014 does not constitute the full statutory accounts for that period. The annual report and financial statements for 2014 has been filed with the Registrar of Companies.
The Independent Auditor's Report on the annual report and financial statement for 2014 was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.
The interim report for the period ended 30 June 2015 was approved by the Board of Directors on 30 September 2015.
2. Going concern
The Group's business activities, together with factors likely to affect its future development, performance and financial position are set out in the Chairman's statement on pages 2 to 4. As described therein, the current economic conditions are challenging and the Group has taken action to streamline the business operations, reduce costs and manage its cash resources, whilst preserving the ability to support its customers in all key markets.
Based upon current and expected market conditions, the Directors have updated their forecasts of trading and cash flows, which take into account all reasonably foreseeable circumstances, and indicate that the existing banking facilities, which were agreed on 27 May 2015, provide sufficient headroom throughout the period to 31 December 2016. However, the downturn in trading has impacted a number of the financial covenants under which the facilities were granted and negotiations are on-going with the Group's bankers to agree revised covenants. The banks remain supportive and have not indicated they will be seeking to reduce the facilities currently available to the Group. To date, they have confirmed that the covenants will not be measured at 30 September 2015 and negotiations to agree appropriate covenants are expected to be concluded before 31 December 2015, the next measurement date.
Whilst the Directors are confident that the negotiations will be concluded successfully and therefore have a reasonable expectation that the group has adequate resources to continue to operate, they recognise that the potential future covenant breaches represent a material uncertainty that casts doubt upon the Group's ability to continue as a going concern at the date of issuing these interim statements.
3. Exceptional costs
The exceptional costs include £0.9m of costs incurred in closing down businesses, £0.2m of redundancy costs relating to continuing entities, £0.1m of acquisition costs and a £0.2m impairment charge on the intangible assets relating to our loadcell business in Singapore.
4. Earnings per share
The earnings per share figure has been calculated by dividing the loss (2014: profit) after taxation, £1,936,000 (2014: £2,568,000), by the weighted average number of shares in issue, 18,384,877 (2014: 17,348,040).
The diluted earnings per share assumes all share options are exercised at the start of the period or, if later, the date of issue of the share options. This increased the weighted average number of shares in issue by 303,860 (2014: 653,127). At the end of the period, the Company had in issue 440,980 (2014: nil) share options which have not been included in the calculation of the diluted earnings per share because their effects are anti-dilutive although these share options could be dilutive in the future.
5. Dividends
An interim dividend of 1.00 pence per share (2014: 2.20 pence) will be paid on 30 October 2015 to shareholders on the register as at 9 October 2015. In accordance with IFRS, no provision for the interim dividend has been made in these financial statements.
6. Interim report
Copies of the interim report are being sent to all shareholders and are available to the public from the offices of Northbridge Industrial Services plc at Second Avenue, Centrum 100, Burton on Trent, Staffordshire DE14 2WF. The interim report and the interim announcement will also be available from the Group's website at www.northbridgegroup.co.uk.
Related Shares:
NBI.L